* This designation is without prejudice to positions on the

status, and in line with UNSCR 1244/1999 and the ICJ

Opinion on the Kosovo declaration of independence.

INSTRUMENT FOR PRE-ACCESSION ASSISTANCE (IPA II)

INDICATIVE STRATEGY PAPER FOR KOSOVO* (2014-2020) ADOPTED ON 20/08/2014

2

TABLE OF CONTENTS

PART I: INTRODUCTION .................................................................................................................................. 3

1. Purpose .................................................................................................................................................... 3

2. Consultation on this Strategy Paper ........................................................................................................ 4

PART II: ANALYSIS OF NEEDS AND CAPACITIES .................................................................................... 4

1. Political and economic context ............................................................. Error! Bookmark not defined.

2. Context for the planning of assistance .................................................................................................... 8

PART III: THE OVERALL DESIGN OF PRE-ACCESSION ASSISTANCE TO KOSOVO..................... 12

PART IV: EU ASSISTANCE DURING THE PERIOD 2014-2020 ................................................................ 16

1. Democracy and Governance ................................................................................................................. 16

2. Rule of law and fundamental rights ...................................................................................................... 20

2.1 Sub-Sector: Justice ................................................................................................................................ 21

2.2 Sub-Sector: Home Affairs ..................................................................................................................... 22

2.3 Sub- Sector: Fundamental Rights and Minorities ................................................................................. 24

3. Energy ................................................................................................................................................... 25

4. Competitiveness and innovation ........................................................................................................... 28

5. Education, employment and social policies .......................................................................................... 30

6. Agriculture and Rural Development ..................................................................................................... 32

7. Territorial cooperation and regional cooperation .................................................................................. 35

ANNEX 1: INDICATIVE ALLOCATION (MILLION EUR)......................................................................... 37

ANNEX 2: INDICATORS AND TARGETS ..................................................................................................... 37

3

PART I: INTRODUCTION

1. Purpose

This Indicative Strategy Paper (the Strategy Paper) sets out the priorities for EU financial

assistance for the period 2014-2020 to support Kosovo in fulfilling its European perspective.

It translates the political priorities set out in the enlargement policy framework into key areas

where financial assistance is most needed to meet the relevant criteria.

The Instrument for Pre-accession Assistance (IPA II) is the main financial instrument to

provide EU support to the beneficiaries in implementing reforms with a view to EU

approximation. Financial assistance under IPA II pursues the following four specific

objectives: (a) support for political reforms, (b) support for economic, social and territorial

development, (c) strengthening the ability of the beneficiaries listed in Annex I to fulfil the

obligations stemming from Union membership by supporting progressive alignment with,

implementation and adoption of, the Union acquis1, (d) strengthening regional integration and

territorial cooperation. Furthermore, the IPA II Regulation states that financial assistance shall

mainly address five policy areas: a) reforms in preparation for Union membership and related

institution and capacity building, b) socio-economic and regional development, c)

employment, social policies, education, promotion of gender equality, and human resources

development, d) agriculture and rural development, and e) regional and territorial cooperation.

In order to increase its impact, EU financial assistance shall be concentrated on the areas

where reform and investment are most needed to meet Copenhagen criteria and tailored to

take into account the capacity of Kosovo to meet these needs. Assistance shall be planned in a

coherent and comprehensive way with a view to best meeting the four specific objectives and

address, as appropriate, the thematic priorities for assistance listed in Annex II of the IPA II

Regulation, as well as the thematic priorities for assistance for territorial cooperation listed in

Annex III of the same Regulation.

Moreover, EU assistance is only one of the means to achieve the necessary progress. When

deciding on priorities for action, due account needs to be taken of the beneficiary's own means

as well as of the support provided through other EU instruments and by other stakeholders, in

particular bilateral donors or International Financial Institutions. In view of the above aspects,

preference shall be given to providing financial assistance under a sector approach to ensure a

more long-term, coherent and sustainable approach, allow for increased ownership, facilitate

cooperation among donors, eliminates duplication of effort and brings greater efficiency and

effectiveness.

With a view to delivering on the priorities set for EU financial assistance for Kosovo for the

coming seven years, this Strategy Paper sets meaningful and realistic objectives, identifies

key actions and actors, describes the expected results, indicates how progress will be

measured and monitored, and sets out indicative financial allocations. The priorities defined

for financial assistance will serve as a basis for the (multi-) annual programming of IPA II

funds from 2014 to 2020. The indicative financial allocations allow for an appropriate amount

of assistance to remain available as a "reward" on the basis of an assessment of performance

1 Art 2, Regulation (EU) no 231/2014 of the European Parliament and of the Council.

4

and progress over a period of several years but not later than in 2017 and 2020 respectively,

as defined in the IPA II Regulation.

This Strategy Paper shall be reviewed at mid-term and revised as appropriate. It may also be

revised at any time upon the initiative of the European Commission.

2. Consultation on this Strategy Paper

The Strategy Paper has been established in partnership with Kosovo and takes into account its

strategies and priorities. Between December 2012 and December 2013 various consultation

meetings were held with the Ministry of European Integration (MEI). The MEI organised

further consultations with line ministries and provided significant inputs for the Strategy

Paper at different stages of the drafting process. Consultations with the European Union Rule

of Law Mission (EULEX) were launched in March 2013 and continued throughout the

drafting process. EULEX and the European External Action Service (EEAS) provided

relevant input on the needs for IPA II assistance in the rule of law area. In June 2013, a first

consultation meeting with civil society was organised jointly by the EU Office in Kosovo and

the MEI, followed by others organised with the help of a facilitator. At the Stabilisation and

Association Process Dialogue (SAPD) Plenary with civil society organisations (CSOs) held in

June 2013, CSOs had another opportunity to comment on the initial draft. CSOs also provided

written input and were again consulted at local level. Consultations with EU Member States

and other bilateral and multilateral donors took place in the context of the bi-monthly donor

coordination meetings ("MS+ meeting") hosted by the EU Office in Kosovo.

A strategic dialogue with the European parliament has been conducted. International

organisations, other donors and Commission services have been consulted throughout its

preparation. Consultations with IFIs were also organised, in particular through the local

offices and the bilateral annual coordination meetings organised with the World Bank, the

Kreditanstalt für Wiederaufbau, the European Bank for Reconstruction and Development, and

the European Investment Bank. The Council of Europe Development Bank has been

consulted as from June 2013, when Kosovo’s request for membership was approved by its

Governing Board.

PART II: ANALYSIS OF NEEDS AND CAPACITIES

1. Political and economic context

According to the census carried out in 2011, Kosovo has a population of 1.7 million people.

Kosovo's political system is based on the principles of a parliamentary democracy with a

central and a local government. For the majority of policy areas, Kosovo has put in place

elements of a legislative framework in line with EU standards and basic administrative

capacities. The fundamental structures for governance at central and local levels are in place.

However, capacity varies across different ministries and is generally weak at the municipal

level, thus preventing, together with lack of funding, the proper implementation of

decentralised services, in particular in education, social services and healthcare.

5

Kosovo’s EU relations are piloted by the Ministry of European Integration, which has set up a

number of inter-ministerial coordination structures. The National Council for European

Integration, established under the President's auspices, aims to bring together representatives

from across Kosovo's political spectrum and society.

Kosovo is currently implementing its Public Administration Strategy 2010-2013 and will

prepare a new strategy from 2015 onwards. Implementation of the action plan for public

administration reform started late, which delayed the delivery of results. Public administration

reform has also been hindered by lack of political will, professionalism and motivation and

there continues to be undue political influence on the civil service. Kosovo is still

experiencing difficulties in ensuring the right expertise and the necessary continuity of its

civil service. The legal basis for a well-functioning public financial management system is in

place, but implementation is lagging behind. Enforcement of tax legislation remains a

challenge. The fight against the informal economy and tax evasion needs to be given priority

and become more efficient.

In the rule of law area, the main institutions have been set up and legislation has been

adopted. The legislative framework is largely complete. However, local capacity and

expertise in the rule of law is still weak and interference in the judiciary is still a major

concern. The fight against organised crime and corruption still remains a significant

challenge: corruption and informal business practices including drug trafficking, are

widespread and hinder economic development. Kosovo's experience and expertise in carrying

out complex criminal investigations and conducting complex operations are improving, but

are still limited. Institutional responsibilities are not always clearly attributed and can lead to a

lack of accountability of the relevant institutions. The most sensitive organised crime trials

continue to be presided over by mixed panels of local and EULEX judges. Key institutions of

the judiciary are in place but are still weak despite a progressive increase in their capacity. As

a consequence, Kosovo citizens have very little confidence in the judiciary.

Kosovo has adopted legislation enshrining the principles of impartiality, independence,

accountability and efficiency of the judiciary and some related reforms have taken place.

However, implementation of legislation and judicial independence continue to be a challenge.

In this regard, the 'First agreement of principles governing the normalisation of relations

between Kosovo and Serbia' reached in April 2013 foresees the integration of Serbian security

personnel and judiciary authorities into Kosovo structures.

Kosovo’s constitution lists international human rights instruments, which are directly

applicable in Kosovo and form an integral part of its legal framework. As regards the

promotion and enforcement of human rights, the key challenge is to improve the

implementation of the existing legal framework and the enforcement of decisions remedying

human rights infringements. Non-majority communities, for example, continue to face major

challenges and discrimination: the implementation of the Strategy and Action Plan for the

Integration of Roma, Ashkali and Egyptian Communities (2009-2015) remains weak and

inconsistent. Some 17,000 individuals belonging to different ethnic groups are still believed to

be displaced in Kosovo.

Kosovo has implemented initial reforms to establish a fully functioning market economy but

the weak rule of law, a large informal economy and an underdeveloped policy framework

6

continue to hinder socio-economic growth. GDP per capita is EUR 2 794 in 20132, equal to

11% of the EU-27 average. Public debt is low, equal to 9.1% of GDP in 20133. The inflation

rate experienced a dramatic decrease from 7.3 % in 20114 to 1.8% in 2013. However, 34.5%

of the population still live in poverty, with less than EUR 1.55 per day and 12% in extreme

poverty. Children are particularly vulnerable with an estimated 48.6% below 18 years of age

living in poverty. Unemployment is very high at 30.9 %, according to a Labour Force Survey

(LFS) conducted in 2012 and youth unemployment stands at 55.3%. The LFS highlighted that

the high rate of unemployment is accompanied by a very low labour market participation

overall (36.8%) and for women in particular (18.6%), as well as by an equally low

employment rate (23.9% overall, 10.3% female).

The business climate in Kosovo is hindered by limited access to finance, unreliable energy

supply, unfair competition and corruption. Kosovo’s enterprise sector is dominated by small

and micro-enterprises; retail trade continues to be the dominant sector. The trade deficit is

large, with a deficit of 33.9% 5of GDP and a ratio of imports to exports of some 9:1. Kosovo's

main trading partners are the EU, Albania, Serbia, the former Yugoslav Republic of

Macedonia and Turkey. Currently, about 90% of exports consist of raw materials. Moreover,

economic statistics (central accounts in particular) are extremely weak, making a

comprehensive assessment of the economic situation difficult.

The agricultural sector contributes to about 14.1% of the GDP and is the largest employer in

Kosovo, with a substantial proportion of Kosovars dependent on the rural economy. Its share

of total employment accounts for approximately 35%. The Agricultural Household Survey

2012 accounted for about 379,000 ha of overall agricultural land and 277,364 ha (73%) of

private agricultural land: 41% of this area is used as arable land and 26.0 % as meadows and

pastures. Kosovo possesses diverse soils, even though its territory is small. It is estimated that

15% of Kosovo's soil is of high quality, 29% of medium quality, and 56% is of poor quality.

Livestock production is particularly profitable and of high economic importance. Kosovo’s

agriculture is nonetheless hampered by lack of competitiveness linked to the small size of

land parcels, as well as a lack of organisation (co-operatives, leasing schemes, irrigation

programmes) and difficult access to finance. However, the agricultural sector has further

growth potential, both in terms of production and trade. In 2013, the share of newly-created

enterprises in agriculture is stable compared to 2012. Currently, the trade balance in

agricultural products is negative: the value of exports of agricultural products of EUR 25.8

million in 2011 is dwarfed by the value of EUR 560.1 million in imports. The most significant

imports in terms of value are food preparations, beverages, tobacco, meat, dairy products and

sugar.

In line with the government's objectives for economic development, the budget for the

agricultural sector has continuously increased over the past years. It is mainly used for direct

support to farmers to improve the productivity and the quality of agricultural products and to

increase production for import substitution. Animal health is monitored through regular sero-

surveillance programmes, annual vaccination schemes and passive surveillance systems

whereby veterinarians and farmers report occurring diseases to the Animal Health Department

2 Source: Eurostat

3 Source: Ministry of finance, Kosovo.

4 Idem.

5 Source: Eurostat 2012.

7

of the Food and Veterinary Agency. Agri-food establishments are being upgraded to meet EU

standards.

Kosovo's most significant energy source is lignite. Approximately 98% of electricity

generation comes from two outdated, inefficient and highly-polluting lignite-fired power

plants: Kosovo A is in poor condition and the biggest source of pollution in Kosovo (the

government is committed to shut this plant down in 2017), and Kosovo B, which needs

rehabilitation to meet EU environmental standards. The level of bill collection has improved

to 91 % of all electricity billed although the level of power produced and actually paid for is

still low. Daily power cuts still occur in some areas at moments of high demand, thus

negatively impacting on investment and business development.

The Law on Energy Efficiency was adopted in 2011, followed by secondary legislation in

2012, while in 2013 the government adopted a revised energy strategy. The Kosovo Energy

Efficiency Action Plan (KEEAP) 2010-2018 has also been approved. This long-term strategic

document covers most of the energy consuming sectors, such as transport, agriculture,

industry and services. It requires municipalities to establish energy offices and prepare energy

efficiency plans. As required by the Energy Community Secretariat, Kosovo's Energy

Efficiency Agency (KEEA) has to prepare 3-year programmes to implement the KEEAP with

clear measures and verification/evaluation mechanisms. Due to incompatibilities with the law

on public finance, Kosovo still has not managed to establish an energy efficiency agency or

fund. As a result, only limited funds from the Kosovo budget have been made available for

energy efficiency measures. In 2013, the government adopted its renewable energy targets for

2013-2020, committing to a 29.4 % target share of energy from renewable sources in gross

final consumption by 2020. The Energy Regulatory Office (ERO) has set feed-in tariffs for

wind and hydro generation and biomass, but tariffs have to be further developed for solar,

geothermal and other renewable energy sources. Unfavourable tariffs and complicated

licensing and permit procedures are some of the obstacles to the further development of

renewables.

The energy sector is the main source of air, water and soil pollution in Kosovo.

Environmental and climate standards are not mainstreamed into other policies, particularly

energy, transport, forestry, agriculture and industry. There are insufficient capacities for waste

management and a significant part of the households does still not have direct access to

drinking water.

A government strategy and action plan for cooperation with civil society was developed in

partnership with civil society organisations and adopted in July 2013. However, cooperation

between CSOs and the governmental institutions is still limited and often ad hoc.

Regarding gender equality the inclusion and participation of women at all levels of society

remains a key challenge. Gender stereotypes existing in the society help to preserve a

structural gender gap in economic, political and social areas. Women, particularly those

belonging to minority communities, represent the most socially excluded groups.

Empowerment of women is depended on improvements in education, health, and economic

participation. Until recently, there has been very limited comprehensive information available

on the situation of women in Kosovo society. In cooperation with international partners, a

Gender Country Profile was established in 2014, providing relevant baseline data on gender

differences at all levels, which will be used for monitoring future developments concerning

gender equality in Kosovo.

8

Kosovo joined the World Bank and the International Monetary Fund in 2009 and has been a

full member of the European Bank for Reconstruction and Development since December

2012. In June 2013, Kosovo signed a framework agreement with the EIB. It became a

member of the Council of Europe Development Bank in November 2013.

2. Context for the planning of assistance

2.1 EU Enlargement Strategy

Kosovo shares its European perspective with the rest of the region and participates in the

Stabilisation and Association Process for the Western Balkans. In June 2013, the Council

authorised the opening of negotiations for a Stabilisation and Association Agreement (SAA)

between the EU and Kosovo. SAA negotiations were launched in October 2013. To meet its

obligations under an SAA, Kosovo will need in particular to: improve the rule of law,

judiciary; increase the efficiency and transparency of its public administration; finalise the

electoral reform; strengthen the functioning of the Assembly; strengthen the enforcement of

human and fundamental rights; improve the protection of minorities; improve trade and

internal market issues; progress in the alignment to the EU standards in the phytosanitary and

veterinary field.

Following a resolution by the UN General Assembly of September 2010, the European Union

has been facilitating a technical dialogue between Kosovo and Serbia. This dialogue has

resulted in a number of technical agreements. The political dialogue at Prime Ministers' level

has resulted in a 'First agreement of principles governing the normalisation of relations

between Kosovo and Serbia' on 19 April 2013, followed by an implementation plan agreed on

22 May 2013. Following this landmark agreement, continued visible and sustainable progress

in the normalisation of relations with Serbia, including the implementation of agreements

reached so far, will remain essential. The EU supports the implementation of the agreements

reached in the political dialogue through IPA and EULEX.

Improving the rule of law is one of the key priorities identified in the 2012 and 2013

Enlargement Strategies and in the Feasibility Study for an SAA. It is essential for improving

the business climate and attracting investment and for fighting common security challenges as

laid out in the EU's Internal Security Strategy: disruption of international criminal networks,

prevention of terrorism and addressing radicalisation and recruitment, raising the levels of

security for citizens and businesses in cyberspace, strengthening security through border

management and increasing Europe’s resilience to crises and disasters. The European

Commission monitors Kosovo's progress in its fight against organised crime and corruption.

The high-level Structured Dialogue on the Rule of Law was launched in October 2011. In

January 2012, the Commission launched the visa liberalisation dialogue with Kosovo. Since

2008, the EU rule of law mission EULEX has been monitoring, mentoring and advising

Kosovo on the rule of law, notably on police, justice, customs, civil registry matters and home

affairs. It also has some executive responsibilities. In November 2012, the Kosovo

government, the Head of the EU Office/EUSR and EULEX signed a joint rule of law

agreement, the Compact, setting out common rule of law objectives until the end of the

current EULEX mandate (June 2014). A Strategic Review of the EULEX mandate concluded

9

to continue a more focused mandate until June 2016. The NATO-led military presence of

NATO's Kosovo Force (KFOR) continues to provide security throughout Kosovo.

Although the institutional framework is almost complete, improving good governance,

including public administration reform, continues to be a key priority for Kosovo. Adequate

administrative procedures, including human resources and public financial management, tax

collection, as well as reliable and independent statistical systems are fundamental for the

functioning of Kosovo institutions and for implementing the reforms needed for EU

approximation. In view of the implementation of the future SAA, improving administrative

capacities will become even more important. It will require Kosovo's public administration to

have a solid strategic planning process in place, enabling a coherent and consistent approach

in implementing the necessary reforms. The link between the strategic planning and the

Medium-Term Expenditure Framework is also essential. Since June 2013, Kosovo is engaged

in a structured policy dialogue with the EU on public administration reform (PAR). The

Special Group on PAR offers the opportunity to review the state of implementation of the

action plan on PAR and provides the necessary support to Kosovo and its institutions in

incorporating best practice and common principles shared among EU Member States.

Kosovo currently benefits from unilateral trade concessions allowing it almost unlimited duty

free access to the EU market. This trade regime is to be replaced or complemented by the

trade provisions in the future SAA. Kosovo needs to improve its statistical data collection as

there are significant differences between the EU and Kosovo data on trade and many other

sectors.

An important cross-sector element under IPA II concerns economic governance and inclusive

growth in view of enhancing Kosovo's socio-economic development. The 2013 enlargement

strategy6 highlights a new EU approach towards economic governance in the enlargement

countries. This approach responds more systematically to the economic criteria7, as defined

by the Copenhagen European Council in 1993. Enlargement countries are invited to enhance

economic policy and its governance through preparation of annual National Economic

Reform Programmes and biennial Competitiveness and Growth Programmes. These

programmes will be evaluated by the Commission, who will provide guidance on reforms

needed to achieve further progress towards meeting the Copenhagen economic criteria.

Countries are further invited to engage in comprehensive public financial management reform

and prepare a multi-annual public financial management strategy and an action plan (a reform

programme). Sound public financial management is key to sustainable structural economic

reform. It will also be relevant for possible sector budget support under IPA II.

Kosovo is party to the Energy Community Treaty and has adopted a number of laws on the

energy sector compatible with the EU acquis. The energy sector is governed by three laws

adopted in 2010, reflecting the commitments of the second EU internal energy market

package. In order to meet its energy community obligations, it will need to transpose the third

energy package during 2014. Kosovo will need to begin alignment with the acquis on security

6 COM(2013)700 of 16.10.2013 - Communication from the Commission to the Council and the European

Parliament, "Enlargement Strategy and Main Challenges 2013-2014" and corresponding progress reports 7 The first criterion concerns the functioning market economy, including market policy essentials,

macroeconomic stability, interplay of market forces, market entry/exit, legal system and financial sector. The

second criterion concerns the capacity to compete in the single market, including human and physical capital,

sectoral structure of the economy, State influence on competition, and trade integration with the EU.

10

of supply, and continue its alignment with and implementation of the electricity, oil and

nuclear safety and radiation protection acquis. Kosovo will need to undertake concrete steps

to transpose and implement EU climate acquis including disaster risk reduction, starting from

the monitoring mechanism legislation. In line with the expected EU 2030 framework for

climate and energy policies Kosovo should start reflecting on its climate and energy

framework.

An empowered civil society can play an important role in ensuring that the principles of

human dignity, freedom, equality, the rule of law and respect for human rights, including the

rights of persons belonging to minorities are upheld in practice. It is also a crucial component

of any democracy. The involvement of civil society contributes to a deepening of citizens'

understanding of the reforms that need to be completed in order for Kosovo to move forward

in its EU agenda. This can help ensure that it is not just a government-driven exercise and

stimulate a balanced public debate, which is crucial to achieving further progress. In Kosovo,

the Commission has established a mechanism for structural consultations with civil society

organisations in the context of the Stabilisation and Association Process Dialogue.

Gender is a cross-cutting theme in EU policy and cooperation. The 'Strategy for equality

between women and men' represents a comprehensive framework committing the European

Commission to promote gender equality into all its policies. The ‘Gender Equality and

Women's Empowerment in Development - EU Plan of Action 2010-2015’ (EU GAP) adopted

in 2010 aims to place gender equality issues systematically on the agenda of dialogue with

partner countries. The Gender Country Profile currently being established for Kosovo will

serve as a reference document for the programming and implementation of assistance under

the Instrument for Pre-Accession.

Kosovo has been benefitting from the Instrument for Pre-Accession Assistance (IPA) since

2007. The EU allocated a total amount of approximately EUR 660 million for Kosovo under

IPA in the period 2007-2013.

Given the developments related to the future SAA and the need for continuing normalisation

with Serbia, EU-Kosovo relations are expected to remain dynamic in 2014-2020. To be able

to respond to these challenges it is essential that IPA II assistance can be implemented in a

flexible way.

2.2 Relevant strategies

Kosovo does not currently have a comprehensive development strategy. However, a number

of mid-term planning documents exist. The Strategy Paper takes into consideration Kosovo's

Strategy for European Integration 2014 – 2020, the Declaration of Mid-Term Priority Policies

2014-2016, and the Mid-Term Expenditure Framework (MTEF) 2014-2016. The limitation of

these documents is that important policy agendas such as European approximation and

economic development are not yet integrated into the budget or MTEF. Steps in this direction

have been taken in the last few years, but a holistic view on Kosovo's medium and long-term

development is still missing. In general terms, sector planning in Kosovo is at an early stage.

One of the aims of IPA II will therefore be to support Kosovo's institutions in developing

comprehensive sector strategies, including the systematic use of strategic planning.

Kosovo has started developing multi-annual strategies in most sectors, but many are of

limited scope or duration and are not accompanied by a budget. Nevertheless, in a few

sectors, comprehensive and realistic sector strategies have been developed by the respective

11

ministries, often assisted by donor partners. Good examples are the Agricultural and Rural

Development Plan 2014-2020, the Energy Strategy 2009-2018, and the Kosovo Education

Strategic Plan 2011-2016. The main weakness of these strategies lies in their cost estimates

and strategic planning. Future financial assistance will be provided to develop sector

strategies in sectors where these are missing or need improvement.

Regional cooperation and good neighbourly relations are an essential element of Kosovo’s

European path. Following a technical dialogue agreement with Serbia in February 2012,

Kosovo's participation in regional cooperation arrangements has improved. Nevertheless,

difficulties persist in regard to Kosovo's integration into regional cooperation mechanisms as

well as its membership of some international or regional bodies managing technical issues

linked to the acquis. Kosovo is part of the Central European Free Trade Agreement (CEFTA).

The share of exports to CEFTA member countries was about 26% in 2011. Kosovo joined the

Regional Cooperation Council early in 2013. Kosovo also participates in the South East

Europe Transport Observatory (SEETO) forum, the Energy Community Treaty, the South

East Europe (SEE) Centre for Entrepreneurial Learning, the Regional Rural Development

Standing Working Group in the SEE, the Regional Environmental Network for Accession,

and the Network of Associations of Local Authorities of the SEE. Kosovo has committed

itself to the regional South East Europe (SEE) 2020 growth targets which were agreed by a

Ministerial Conference of the South East Europe Investment Committee of the Regional

Cooperation Council (RCC). Kosovo is ready to participate fully in other regional initiatives,

including the future Transport Community Treaty, judicial cooperation, arrangements for

employment and social policies within the framework of the SEE Employment and Social

Policy Network and the SEE Health Network, as well as the Roma Decade.

2.3 Conditions for managing pre-accession assistance

The IPA II Regulation foresees preparation for the decentralisation of assistance management

in potential candidates, in order to increase ownership and build capacities for managing EU

funds under Indirect Management (formerly decentralised implementation system). The

objective of indirect management in the context of the pre-accession strategy is to improve

ownership and to enable candidate countries and potential candidates to implement EU funds

themselves and demonstrate their ability to assume the relevant responsibilities.

The ownership of Kosovo institutions and the overall capacity to plan, programme, implement

and monitor financial assistance have significantly increased over the years. Staff of the

Ministry of European Integration is well-trained on EU matters. The level of knowledge and

expertise is less developed among other institutions, especially at the local level. A roadmap

for indirect management of EU assistance will be developed by 2015. Based on this roadmap,

the government will upgrade existing structures and set up new ones to implement EU funds.

If the sector approach is to be applied in a particular area, certain criteria will have to be met.

The Kosovo government will have to put in place policies and strategies, medium-term

budget frameworks, coordination and monitoring mechanisms, and arrangements that allow

for the evaluation of results and impact. Kosovo is at an early stage in this regard. It does not

yet have a comprehensive development strategy and lacks the capacity to effectively

coordinate government development priorities. Although there have been some positive

developments, the link between sector strategies and the Medium-Term Expenditure

Framework is still weak. Donor coordination mechanisms are in place through sector working

groups coordinated by the Ministry for European Integration (see also section 2.4. below).

However, monitoring and performance assessment are weak and require strengthening.

12

As concerns sector budget support, four key conditions need to be met. For Kosovo to be

eligible, it will require: a stable macro-economic framework; a credible and relevant

programme to improve public financial management; transparency and oversight of the

budget; and credible and relevant sector strategies that are consistent with the EU

approximation strategy. Once these minimum conditions are met, sector budget support could

be considered in all sectors that benefit from a sound strategic basis for reform.

2.4 Donor coordination and complementarity with other EU assistance

Within the government, the Ministry of European Integration is responsible for coordinating

donor assistance. The Aid Management Platform, established with EU support, is used as a

main tool for monitoring of donor activities. Sector working groups, established with the aim

to coordinate donor activities, are not yet fully functional and lack substantial involvement

from donors and line institutions. However, progress has been achieved in some sectors, such

as public administration reform, and agriculture and rural development where some

monitoring and implementation structures have been set up. The EU Office hosts bi-monthly

coordination meetings with EU Member States and other bilateral and multilateral donors

(US, UN agencies etc.). Close cooperation has been developed with EULEX on EU assistance

provided to the rule of law sector.

Despite the diminishing number of donors active in Kosovo, the international donor

community is still very present: the European Union is the main donor, followed by the

United States of America and Germany. Other Member States active are: the United

Kingdom, France, Sweden, Austria, the Grand Duchy of Luxembourg, Belgium, Italy and the

Netherlands. The donor community in Kosovo also includes Switzerland, Norway, Japan, and

Turkey. IFIs active in Kosovo are: the European Investment Bank (EIB), the World Bank

(WB), the International Monetary Fund (IMF), the Kreditanstalt fur Wiederaufbau (KfW), the

Council of Europe Development Bank (CEB) and the European Bank for Reconstruction and

Development (EBRD).In addition to IPA, Kosovo receives EU assistance also through the

European Instrument for Democracy and Human Rights (EIDHR) and the Instrument for

Stability (IfS). Coordination with IPA assistance is ensured by the EU Office in Kosovo.

2.5 Consistency with EU policies

Financial assistance in the priority areas identified in this Indicative Strategy Paper will be

granted in line with and in support of the enlargement strategy for Kosovo. It will be shaped

to be consistent with EU policies in the same area, in particular with the Europe 2020 strategy

and applicable macro-regional strategies, the flagship initiatives of the EU to boost growth

and jobs, as well as the environment and climate policy objectives of the EU. The objectives

set until 2020 reflect the expected level of economic development and the state of progress in

Kosovo's integration process. The objectives agreed under the SEE 2020 Strategy are

important benchmarks for Kosovo's reform efforts and financial assistance under IPA II will

be used to support meeting these benchmarks.

PART III: THE OVERALL DESIGN OF PRE-ACCESSION ASSISTANCE TO

KOSOVO

13

Kosovo needs continued support to address political and economic priorities to ensure

progress in the enlargement process. Ambitious reforms need to be planned and implemented,

in line with the emphasis on the rule of law and economic governance. Financial assistance

will complement reforms and support investment with a clear relevance for the integration

process or which make a substantial contribution to the socio-economic development of

Kosovo, with a view to converge with EU legislation or best practice.

The needs of Kosovo as regards the process of institutional and legislative reforms, but also

with respect to investments in the development of infrastructure, cannot be met by resources

available from the national budget, IPA or other donors alone. Therefore prioritisation is

essential. Taking into account present and future needs related to the integration process, pre-

accession financial assistance for the period 2014-2020 will focus on the priorities highlighted

hereafter.

Democracy and Rule of Law

Kosovo’s public administration will need support within the framework of democracy and

governance, especially in view of future SAA implementation. IPA II will support Kosovo in

creating a de-politicised, reliable, transparent and accountable public administration and civil

service at all levels, able to provide an efficient service to citizens and the business

community, in line with EU standards. This is fundamental for the successful implementation

of the necessary reforms. Democratic institutions, including the Assembly and the

independent oversight bodies, will be supported to improve their capacity to provide checks

and balances. The capacity of local level government also needs strengthening. Economic

governance will be supported together with efforts to improve sound public financial

management. Kosovo will also need to reinforce civil society, in order to stimulate

participatory democracy.

Reforms in the rule of law and fundamental rights sector are a key strategic priority for pre-

accession assistance to Kosovo because of their political significance for the enlargement

process and relevance to a favourable environment for economic growth. Given their

importance for EU approximation process, judicial reform and the fight against corruption

and organized crime and drugs trafficking will continue to be considered strategic priorities.

The same applies to efforts to enhance human rights and support to the inclusion of non-

majority communities and vulnerable groups. IPA II assistance will also continue to support

the implementation of Kosovo-Serbia dialogue agreements and support Kosovo in taking over

responsibilities from the CSDP mission in Kosovo. IPA II will contribute to the creation of an

accountable, independent and efficient judicial system which is aligned to EU legislation and

best practice, and enhance the capacities to prevent, investigate, prosecute and convict cases

of organised crime and corruption. It will also support effective implementation of the legal

framework for the protection of human rights and protection of minorities, including the

creation of sustainable livelihoods and durable integration into Kosovo society for returnees,

IDPs and refugees wishing to settle in Kosovo.

Competitiveness and Growth

Given the general socio-economic indicators and trends described above, there is a clear need

to continue supporting Kosovo's social and economic development to improve the living

conditions for Kosovo citizens and bring them closer to EU levels. Support to economic

governance, competitiveness and innovation and education, employment and social

policies is of crucial importance to bring Kosovo’s living standards and socio-economic

development closer to the EU average and increase the competitiveness of Kosovo's

economy. As far as the competitiveness and innovation sector is concerned, IPA II will

14

contribute to improving the capacity to design and implement competitiveness related

policies, increasing the competitiveness of the Kosovo economy, including services,

manufacturing as well as providing public services related to the needs of the private sector.

In the education, employment and social policies sector, IPA II will aim to support Kosovo

in implementing the employment and welfare strategy 2014-2020 and improving the

institutional capacities to design and more importantly implement effective policies. As

concerns education, IPA II will join other donors to support the implementation of the

education strategy.

The sectors agriculture and rural development and energy are also key for IPA II

assistance because of their economic potential and because they are acquis-intensive. These

sectors benefit from comprehensive sector strategies that should allow for the introduction of

a sector approach within the next few years. In the energy sector, IPA II will support Kosovo

in ensuring a reliable and sustainable energy supply to citizens and enterprises, in increasing

its energy efficiency and the use of renewable energy sources, and in aligning its legislation

with EU energy standards. Regarding energy production, IPA II will aim to contribute to the

reduction of its environmental and health impact. Agriculture and rural development

employ most of the population and counts as the main source of income for Kosovo citizens.

IPA II will therefore contribute to substantially increase the competitiveness of Kosovo's

agriculture and food production, to raise food safety standards of local products and to

improve the living standards of Kosovo's rural population and to increase its resilience to

effects of climate change. The existence of a reliable strategy for the period 2014-2020 and a

limited number of stakeholders should facilitate the progressive introduction of the sector

approach.

Assistance for territorial and regional cooperation aims to foster good relations between

regions and countries and familiarise them with the rules and procedures governing the

European Territorial Objective under the Structural Funds. The Cross-Border Cooperation

programme has shown positive effects on neighbourly relations and the lives of people living

in border regions.

Kosovo faces a range of challenges, especially in the rule of law, the economy and social

cohesion. Civil Society Organisations, such as non-governmental non-profit organisations

and independent political foundations, community-based organisations and private sector non-

profit agencies, institutions and organisations and networks at local, national, regional and

international level, can make a substantial contribution to addressing many of these

challenges through lobbying, advocacy and oversight activities at national, regional and local

level. Social partners play an important role in promoting the right to association and

enhancing sector policies. Professional and business associations can contribute significantly

to the formulation, implementation and monitoring of sector strategies in the sectors

supported by EU financial assistance.

In the environment and climate action sector, Kosovo has significant needs to improve the

living conditions for its population and ensure alignment with the EU acquis. Priority needs

include developing the capacities at both central and local government levels to elaborate and

implement policies. Considerable investment is needed to connect Kosovo’s citizens to

drinking water and waste water networks, which require further expansion; interventions in

nature protection and river basin management are also needed. Waste management facilities

need to be expanded, including capacity to separate waste streams and recycle. Investment

needs across the sector are substantial whilst financial allocations for environment are limited

and serious management capacity constraints exist. Insufficient revenue collection and limited

15

budget for maintenance of infrastructures undermines the sustainability of possible

investments. IPA II assistance can focus on supporting the development of policy and

legislation in aligning to the EU acquis and build the necessary capacity to plan, operate and

sustain large infrastructure investment. Kosovo needs to develop and implement a

comprehensive climate action policy and strategy. Work on this has already started, but

special attention should be given to integration of climate relevant issues into the national

(sector) development strategies. IPA II will in particular address these issues through

interventions in the energy and agriculture sector, not excluding additional measures in other

sectors. Also, Kosovo is required to undertake concrete steps in alignment and

implementation of the EU climate acquis. Climate change mitigation activities will focus on

strengthening the institutional capacity to design, implement and monitor mitigation policies,

and improve capacity for transition to a low carbon economy. Particular attention should be

given to GHG emission reduction activities at the urban/local level, with a system for

economy-wide and systematic data collection to gradually comply with EU requirements on

monitoring, reporting and verification. Climate change adaptation activities will focus on

building the relevant institutional capacities at all levels and enhancing resilience of

vulnerable economic sectors and infrastructure to climate change. Climate action represents a

cross-sector element that applies to most sectors in the Indicative Strategy Paper, notably

transport, energy, agriculture and rural development, not excluding additional measures in

other sectors. Climate action relevant expenditure will be tracked across the range of IPA II

interventions in Kosovo, in line with the OECD-DAC's statistical markers on climate change

mitigation and adaptation.

Kosovo's current transport policy, with a heavy emphasis on building new roads, favours the

least environmentally-friendly mode and crowds out investment for other low emission modes

of transport, particularly railways. The integration of Kosovo into regional (rail) transport

networks will be facilitated via the Western Balkans Investment Framework WBIF and

relevant regional programmes. In addition, IPA II support may also be mobilised in response

to unforeseen priority needs relevant to the integration process, which do not fall under the

aforementioned priority sectors. This may include ad hoc and short-term technical assistance

provided under the TAIEX instrument and through twinning projects.

The EU will continue, where necessary, its financial and technical contribution to the

implementation of agreements reached within the framework of Kosovo's dialogue with

Serbia. Subject to the development in the rule of Law sector, additional non-programmable

assistance will be needed to support the transfer of rule of law responsibilities to the Kosovo

authorities from the EULEX mission.

Outcome and impact indicators are proposed to track results to which the EU can contribute

through policy dialogue or financial assistance. However, EU financial assistance is aimed at

supporting the implementation of Kosovo's own sector strategies, which are implemented also

with funding from Kosovo's own budget and other donor contributions. Complementary

indicators at outcome and output level will be included in the sector programmes and actions.

Finally, while programming IPA II assistance, specific attention will be paid to a number of

cross-cutting issues that impact more than one sector and therefore require action across a

number of sectors. These include the prevention of and fight against corruption,

environmental sustainability and climate action, gender equality, strengthening of democracy,

and human rights and civil society participation as well as protection of cultural heritage as

appropriate. Climate relevant expenditure will be tracked across the range of IPA II

interventions in line with the OECD-DAC's statistical markers on climate change mitigation

and adaptation.

16

The indicative financial allocations per policy area and sector resulting from the priorities

defined in this strategy paper are set out in Annex 1.

PART IV: EU ASSISTANCE DURING THE PERIOD 2014-2020

1. Democracy and Governance

1.1 Needs and capacities in the sector

The sector covers overall public sector management, including Public Administration Reform

(PAR) coordination, civil service management and public administration organisation and

functioning, public financial management (including revenue administration and collection,

budget preparation, budget execution with cash management, debt management, public

procurement, accounting and reporting, public internal financial control and external audit),

and policy making capacities. Assistance in customs and taxation fields will also include

support for interconnectivity and interoperability of IT systems with the EU standards, as well

as further alignment to and efficient implementation of the EU acquis due to the specific

requirements under the future SAA. In addition, the sector covers statistics, as well as

evidence based policy development and the capacity to progressively adopt relevant EU

legislation. Civil society development is also included in this sector. The fight against

corruption is an important element of public sector performance and is covered by the ‘Rule

of Law and fundamental rights’ sector.

Kosovo adopted its Public Administration Strategy in 2010, which is to be reviewed at the

end of 2014. The Action Plan will be extended to allow for the completion of all the planned

actions. Kosovo is currently starting preparations for a new strategy on public administration,

which should be adopted at the beginning of 2015. The new strategy needs to be focused on

the finalisation of the remaining legislative elements and on the implementation of legislation

in place. The strategy should be accompanied by solid budgetary planning and reflect the

main EU principles and best practices of public administration reform.

If it is to implement an SAA, Kosovo will need to strengthen its structures, in particular in

those domains directly affected by it and the mechanisms for reporting and monitoring, which

will play a fundamental role in its implementation. In implementing the SAA, Kosovo would

need to focus its efforts on the effects of trade liberalisation: the reduction in import tariff

revenues will need to be compensated and customs revenues and taxation will need to be

rebalanced. Further support is needed for the reform of fiscal systems in Kosovo and the

development of the tax administration to ensure effective tax collection and the fight against

fiscal fraud. The customs authorities and fiscal courts need to enhance their efficiency and

effectiveness in meeting the challenges of liberalised trade under an SAA

Policy coordination mechanisms and ownership on the side of the government have

improved through various measures: the establishment of the Strategic Planning Office

(SPO), the inclusion of the provisions related to strategic planning in the new Government

Rules of Procedures 2011, the current assessment of sector strategies by the SPO, the

establishment of departments for and policy coordination in line ministries and the

17

clarification of procedures and standards for the development of strategies and policies. The

Office of the Prime Minister and the Ministry of European Integration have the capacity to

coordinate the development of key strategic documents and provide a basic reporting and

monitoring mechanism. Consolidation of a strategic planning system is the beginning of a

lengthy process. However, development of realistic plans and the capacity to allow for timely

implementation remains a major challenge.

The basic political and administrative structures of the Assembly are in place, in particular

rules and regulations and processes at political and administrative level to plan the

Assembly’s work and carry out its main functions. Law making continues to dominate the

parliamentary timetable, while executive scrutiny and oversight take second place. Further

improvements need to be undertaken regarding independent oversight bodies, their

independence and the enforcement of their decisions.

The civil service in Kosovo should be strengthened. Particular attention should be given to

the finalisation of the measures regarding the appraisal and appointment system, both at

central and local level. The strong politicisation of the civil service prevents its proper

functioning, especially at the local level. There is a lack of knowledge and skills in the civil

service, including a lack of digital skills. The fiscal decentralisation process has yet to be

completed, which leaves uncertainty as concerns the division of responsibilities between

central and local level. More support to municipalities is needed, since they have been so far

been left out of the decentralisation process. Also, the coordination between central and local

level needs to be further improved. Proper functioning of institutions is still too much based

on people rather than organisations and procedures. The lack of up-to-date and reliable

statistics affects all sectors and needs to be addressed urgently. Statistics and data should be

disaggregated by gender. E-government and e-inclusion need to be further strengthened to

support inclusive development.

Economic governance needs further improvement. Fostering reforms and economic

integration into European structures by improving the formulation and enforcement of

market-based economic policies will require improvement in Kosovo's capacity to provide

and process information on macro-economic performance and forecasts. This should allow it

to formulate economic policy and develop the instruments necessary for its implementation. Challenges related to macro-economic stability strengthening public finances and supporting

private sector development will be addressed by country-specific policy guidance.

Implementation of targeted policy guidance will be subject to an annual cycle of stock-taking,

and annual follow up actions will be prepared in cooperation with providers of technical

assistance, in particular the IMF. As concerns public financial management, especially tax

collection, strategic planning, budgeting, public procurement and public internal financial

control and external audit need strengthening. There is no overall public financial

management reform programme in place. Too often political priorities are not adequately

reflected in the yearly budget statement, complicating reform. Kosovo has developed the

basic legal framework for public internal financial control, but substantial efforts are still

required to implement the concept of decentralised managerial accountability. Kosovo also

needs to put more emphasis on ensuring compliance with European standards, in particular as

concerns procurement agencies.

Previous IPA assistance has been provided for PAR, notably with a view to strengthening the

capacities in crucial areas such as public financial management, including customs

administration, public procurement, and statistics. EU support over the period 2007-13

included strengthening the institutional framework required to transpose and implement the

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EU acquis, in particular regarding trade, public finance, agriculture and the overall

coordination of the enlargement process.

Kosovo's progress in the adoption and implementation of the EU acquis will also require

increased capacities and ownership in all phases of the management of IPA, in particular if it

is to become eligible for sector budget support and comply with the requirement for indirect

management. Management of EU funding requires a specific institutional set-up and special

skills.

Involvement of civil society in policy formulation and monitoring in Kosovo can be further

developed. This includes the social partners (employers' organisations and trade-unions).

Public funding for social services delivery by civil society on behalf of the authorities is

limited. Cooperation between the central and local authorities with civil society can be

improved, notably as regards defining and executing public policies.

1.2 Objectives, results, actions and indicators

By 2020, the performance of Kosovo’s public administration should be significantly

improved if it is to meet the challenges of adopting the EU acquis and implementing a future

SAA. Kosovo will be supported in its public administration reform efforts to create a de-

politicised, reliable, transparent and accountable public administration at all levels, able to

provide an efficient service to citizens and the business community, in line with EU standards.

Kosovo will make consistent improvements toward the establishment of a fully functional

market economy. Economic governance will be strengthened through country-specific policy

guidance from the Commission, issued on the basis of the annual macro-economic and fiscal

programmes and the bi-annual structural reforms and competitiveness programmes.

Preparation for budget support and indirect management by Kosovo will be one of the main

focuses of IPA II. Support will be provided to the implementation of a sequenced public

financial management programme to strengthen sound public financial management in all

relevant public finance sub-systems. Support to strategic planning will also be priorities. IPA

II assistance will support Kosovo to continue its reform of public administration at central and

local level, including the enforcement of legislation on the civil service. IPA II will support

the alignment of the Kosovo institutional framework and capacities with the standards

required by the acquis in particular the implementation of the future SAA, including acquis

on environment. Support for improving governance at the local level may include municipal

infrastructure relevant to local economic development, social service decentralisation and

environmental protection.

Support to civil society should be focused on enabling and stimulating participatory

democracy. This should be reflected in two main goals: achieving an environment that is

conducive to civil society activities and building the capacity of CSOs to be effective and

accountable independent actors. Having adequate structures and mechanisms for civil society

cooperation with public institutions as well as free, clear and accessible flows of information

on matters of public interest is of critical importance. Moreover, capacities of CSOs should be

strengthened to improve their autonomy, representation and accountability. CSOs should

extend their membership base and strengthen their fundraising skills.

IPA II will offer a combination of political and financial support to meet these priorities,

employing a more strategic, effective and results-focused approach to deliver maximum

19

impact as envisaged in the guidelines for EU support to civil society in enlargement countries,

2014-20208. Monitoring results and indicators will be done every year. The Commission will

encourage Kosovo to make legislation more conducive to civil society. It will also promote

the involvement of civil society in the integration process, including in the formulation,

implementation and monitoring of sector strategies for EU financial assistance. The above

guidelines include indicators and baselines and targets are being set.

Expected results in the field of democracy and governance by 2020 include:

Consolidated and coherent PAR coordination and policy planning mechanisms in

place, as well as the mechanisms and capacities needed for alignment with the EU

acquis and implementing the future SAA.

A functioning public administration, accountable to Parliament and supervised by

independent oversight bodies, providing services to citizens and businesses, and

characterised by professionalism and sound administrative procedures, in line with EU

principles.

Capacities of democratic institutions, especially the parliament, are improved for

efficient oversight;

Legal predictability and enforcement of laws and court decisions is improved in the

interest of businesses and citizens.

Fiscal sustainability ensured by the application of a Medium-Term Expenditure

Framework with financing decisions determined by government policies and good

quality fiscal estimates, following the successful implementation of its economic

reform programme, supported by clear accountability arrangements for budget

planning and implementation.

Public financial management is sustainable and effective, following implementation of

a sequenced and comprehensive reform programme over a number of years, including

efficient revenue administration and collection; improved budget preparation and

execution with cash management; public debt management; efficient public

procurement system in accordance with EU rules and international practice; improved

accounting and reporting; and public internal financial control and external audit in

line with EU requirements.

IT interconnectivity and interoperability enhanced.

Decision making processes based on quality statistical data collected and analysed in

line with the statistics standards of Eurostat, including improved economic statistics.

Creation of an environment conducive to civil society activities

Civil society organisation, including social partners, in Kosovo effective and

accountable independent actors fully participating in the policy making process.

Indicators (for details see Annex 2, table 2):

Progress made towards meeting Copenhagen criteria (EC);

Composite indicator Government effectiveness (WB), Burden of Government

Regulation (WEF) and Regulatory Quality (WB);

Statistical compliance (Eurostat).

8 http://www.tacso.org/doc/doc_guidelines_cs_support.pdf

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1.3 Types of financing

The potential to learn and benefit from the experiences of other countries in the region will be

encouraged. Regional initiatives for networking and sharing knowledge (such as RESPA,

SIGMA) could provide added value and will be considered during programming. Significant

emphasis will be put on efforts to coordinate with other donors active in the sector, in

particular GIZ, USAID, and with IFIs (IB, EBRD, WB) as concerns the improvement of

municipal infrastructure. Given the type of interventions needed, twinning, TAIEX and other

institution building instruments will be mobilised to help Kosovo align with EU standards.

The civil society facility (CSF) will use an appropriate mix of funding instruments to respond

to different types of CSOs, needs and contexts.

1.4 Risks

A lack of political will to pursue the necessary reforms. The EU will monitor and

encourage Kosovo's commitment in the context of future SAA implementation and other

forums for policy dialogue.

Most current strategies are outdated or will be outdated by the time IPA II starts and will

require review.

As regards civil society development, the main risks are connected to the negative attitude

of governments to engage in a dialogue with civil society. Risks will be minimised

through a functioning of the civil society facility, the civil society task force, the working

group including delegation task managers, and by technical assistance at national and

regional levels, which will provide policy/financial assistance coordinated approach for

the support to civil society and their dialogue with the government.

2. Rule of law and fundamental rights

Rule of Law is a wide policy area with a substantial number of national and international

stakeholders, which makes coordination and cooperation particularly challenging.

The main EU actor in the area of the rule of law in Kosovo is the EU Rule of Law mission

EULEX, whose mandate expires in June 2016. The rule of law is supported by various

bilateral donors, especially the US and Germany, whose activities are focused on the

judiciary, legal reform, legal education, and property rights. The EU Office seeks to ensure

coordination and complementarity with other donor assistance through regular consultations

during the programming and implementation of IPA assistance.

The 2012 Feasibility Study for a Stabilisation and Association Agreement between the EU

and Kosovo and the Visa Liberalisation Roadmap set out clear requirements that Kosovo

needs to meet in the rule of law area. The main sub-sectors to be addressed by IPA II

assistance are Judiciary, Home Affairs (with a strong focus on the fight against organised

crime and corruption), and Fundamental Rights and Protection of Minorities. IPA II will also

be mobilised to support Kosovo in taking over responsibilities from EULEX as of 2014.

Kosovo has developed a large number of strategies and action plans for the rule of law sector,

including the Strategy and Action Plan for the Fight against Corruption 2013-2017, the

National Strategy against Organised Crime, the Strategy for Communities and Returns (2009-

2013, 2014-2018 under preparation), and the Strategy for the Integration of Roma Ashkali

and Egyptian Communities (RAE) in Kosovo 2009-2015, and others. In May 2014 Kosovo

21

adopted its Rule of Law Assistance Strategy, which will be the basis for the development of

donor support to the sector for the period 2014-2019. The focus for Kosovo in the rule of law

now needs to be on the implementation of strategies, action plans and legislation, to show

results of the fight against organised crime and corruption, and to ensure independence of the

judiciary.

2.1 Sub-Sector: Justice

2.1.1 Needs and capacities in the sub-sector

In order to improve the rule of law, Kosovo needs to strengthen the independence,

effectiveness, accountability and impartiality of its judiciary in particular. An independent

judiciary working in line with proper democratic and professional standards is not only

essential for establishing the rule of law for the immediate benefit of the public, but also for

international cooperation and economic development, including attracting foreign investment.

Political interference in the work of the judiciary is a concern. The enforcement of judgments

in both civil and criminal cases is weak. Both are major impediments towards creating

confidence in the judiciary. The backlog of (old) cases has been decreasing, but the efficiency

of the judicial system still needs to be improved by further reducing the backlog and ensuring

good case management and handling. Kosovo needs to ensure harmonisation and consistency

of legislation. This applies not only to the laws on the judicial system (courts and

prosecutors), but also to criminal legislation and other legislation impacting on the criminal

justice system, including probations, conditional releases, provision of forensic reports, etc.

Assistance provided under IPA I helped Kosovo improve the approximation of laws and the

coherence of its legal framework. Support has been provided to the Kosovo Judicial and

Prosecutorial Councils as well as to the areas of juvenile justice and international legal

cooperation. IPA also supported legal education reform and the improvement of training of

interpreters and translators in the judicial sector and legal linguists. In a country-wide vetting

and re-appointment process all judges and prosecutors in Kosovo have been evaluated and

selected based on merit. Key criteria included professional qualifications and experience, as

well as professional and personal integrity. Correctional services have been strengthened

thanks to IPA support through the construction of a high security prison (open early 2014)

and a forensic institution to provide care for mentally ill prisoners.

2.1.2 Objectives, results, actions and indicators

Until 2020, Kosovo should provide substantial investment to significantly improve the

independence, effectiveness, accountability and impartiality of the judiciary. Access to justice

will have to be enhanced, in particular for non-majority communities and vulnerable groups

(including in northern Kosovo). Another important objective is to improve the capacity and

mechanisms to implement legislation and strategies and to enforce judicial decisions. For

Kosovo to reach these objectives, IPA II will continue to provide assistance for the

approximation of the legal system to EU standards through capacity-building, advising and

monitoring of judicial institutions. EU assistance will also support judicial education and

training in all official Kosovo languages. Supporting Kosovo's economic development,

competitiveness and growth in a comprehensive manner will also require support in the area

of civil justice, including commercial and taxation courts. Capital investment with a direct

effect on access to courts, delivery of justice and independence and impartiality of the

judiciary will also be considered. IPA II will also continue to support the Kosovo correctional

service. Improving security in prisons and increasing safety of staff, prisoners and the general

22

public will require considerable assistance. Further support will also be needed for vulnerable

prisoners, the rehabilitation of offenders and prison administration.

The expected results to be achieved with EU support include:

Legislation is further enhanced to ensure the independence of the judiciary;

Professionalism is strengthened through more and better training for magistrates and

court staff;

The independence, efficiency, integrity and accountability of the judiciary are

strengthened at all levels of the judicial system;

The backlog of open cases is substantially reduced;

Improved enforcement of judicial rulings is ensured and consistency of jurisprudence

is introduced and implemented;

Access to justice is improved;

The penitentiary system complies with international standards, including specific

treatment for different categories of detainees.

Indicators (for details see Annex 2, table 2):

Progress made towards meeting Copenhagen criteria (EC);

Composite indicator Access to Justice (WJP) and Judicial independence (WEF);

2.1.3 Risks

Main risks in the area of justice are: the lack of human and financial capacities to implement

reforms and to process cases in a reasonable timeframe, causing considerable backlogs and

hampering access to justice for citizens and businesses; continued political interference in the

judicial and correctional system, which can undermine the independence of the judiciary.

2.2 Sub-Sector: Home Affairs

2.2.1 Description of the needs and capacities in the sub-sector

IPA assistance supported the development and enforcement of policies and a legal framework

in line with EU standards to combat organised crime, including financial and economic crime.

This included support to the Agency for Management of Sequestrated and Confiscated Assets

(AMSCA) and Kosovo Customs, the Anti-Corruption Agency, Kosovo Police, the Financial

Intelligence Unit, Kosovo Judicial Council and Kosovo Prosecutorial Council. A twinning

project started in 2013 will help strengthen criminal investigation capacities at central and

local level to fight organised crime and corruption.

Although the legislative framework on anti-corruption is largely in place, the institutional set-

up is complex. Kosovo needs to implement its anti-corruption legislation and establish an

effective mechanism for the prevention of corruption, including successful investigations and

prosecutions of appointed and elected officials sentenced for corruption. The functioning of

the police and other law enforcement bodies, in particular the Kosovo prosecution, to

investigate complex criminal activities and fight corruption needs to be improved and the

cooperation between the enforcement and judicial authorities enhanced. Kosovo needs to

develop a more systematic and pro-active, intelligence- and information-based approach to

fight and prevent organised crime and corruption. Particular attention will need to be paid to

issues such as trafficking in human beings, illegal economic activities, drug and illicit arms

trafficking, and terrorism. The capacity of the Kosovo police and prosecution to investigate

23

complex criminal activities needs to be strengthened. There is insufficient local capacity in

the special prosecution office.

Kosovo needs to develop appropriate institutional responses to curbing corruption. Structural

reforms in the vulnerable areas such as procurement, taxes, privatisation, health care and

public services need to establish functional mechanisms to prevent corruption. This includes

regulatory bodies, sublegal acts and procedures, IT systems and oversight mechanisms as well

as increases in the transparency and accountability of the institutions.

2.2.2 Objectives, results and actions and indicators

In the coming years, Kosovo will need to produce concrete evidence of results in fighting

corruption, organised crime and drugs trafficking as a matter of priority. This will require

political will and commitment. Kosovo will need to enhance its capacity to prevent,

investigate, prosecute and convict cases of organised crime, including in fighting the irregular

migration, trafficking in human beings and narcotics, economic crime and money laundering,

cybercrime and terrorism. By 2020, effective criminal investigations and proactive

intelligence-led policing on organised crime and corruption should be the norm. Civilian

oversight of the rule of law institutions will have to be enhanced. IPA will support Kosovo's

efforts through the provision of capacity-building and equipment for police, customs, tax

administration, and other rule of law institutions. Through advising and monitoring key

institutions, EU assistance will aim to further increase capacities of the individual institutions

as well as inter-institutional cooperation. The role of civil society in monitoring and reporting

on corruption and organised crime will be enhanced. IPA II will also support regional

cooperation to fight cross-border organised crime and trafficking. Depending on the

developments in the sector and progress made on the visa roadmap, IPA assistance may be

required in other areas such as civil registration, integrated border management, migration and

asylum.

The expected results to be achieved with EU support include:

The institutional set-up to fight and prevent corruption is rationalised and co-operation

between law enforcement bodies, the judiciary and relevant bodies has improved;

Better trained/experienced staff in the different law enforcement institutions to deal

with challenges related to economic and other forms of organised crime;

Existence of a track record of successful investigations, prosecutions and final

convictions in corruption and organised crime cases;

Effective enforcement of anti-money laundering legislation.

Indicators (for details see Annex 2, table 2):

Progress made towards meeting Copenhagen criteria (EC);

Composite indicators Global Corruption (TI) and Control of Corruption (WB);

2.2.3 Risks

The main risk for EU assistance lies in the potential delays in the implementation of key

strategies on anti-corruption and the fight against organised crime. Reforms require sufficient

political will to achieve the desired results. The organisational and administrative capacities

may affect inter-institutional coordination and cooperation in this area. To mitigate these risks,

specific capacity-building measures will be targeted to inter-agency cooperation to improve

coordination and information sharing.

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2.3 Sub- Sector: Fundamental Rights and Minorities

2.3.1 Needs and capacities in the sub-sector

Kosovo's human rights legislation is broadly in line with international standards, but

implementation remains a challenge. The structures dealing with the protection, promotion

and reporting on human rights need to be streamlined, both at central and local level. The

overall implementation of the Roma, Ashkali and Egyptian Strategy and Action Plan remains

weak and inconsistent as a result of several shortcomings, including a lack of political will,

ownership and insufficient budgetary allocations. Moreover, there is a lack of coordination

between central and local level institutions as well as effective inter-ministerial co-ordination.

The sustainability of the return process continues to be undermined by real and perceived

security threats, limited access to property, blocked or delayed property restitution

proceedings, limited access to public services, and a lack of economic opportunities. Despite

the fact that Kosovo's constitution has strong anti-discrimination provisions, implementation

of anti-discrimination policies is weak. Members of the lesbian, gay, bisexual, transgender

and intersex (LGBTI) community continue to face discrimination, threats and violence.

Women’s representation both in the public and the private sectors remains low, especially in

senior positions. Access to justice for women is limited. Enforcement and protection of

property rights is a key challenge and one of the priorities of the 2012 Feasibility Study.

Media freedom and freedom of expression are still of great concern in Kosovo: media are still

subject to political interference and the public broadcasting company is still completely

dependent on the Kosovo budget.

IPA I has supported the stabilisation of minority communities through livelihood

programmes; the alignment of Kosovo's legislation on asylum and migration issues to EU

standards; and the construction of adequate structures for hosting refugees, asylum seekers,

migrants. It has also supported the sustainable return and reintegration of IDPs and refugees

through durable solutions (comprising housing, socio-economic support, legal aid) and

increased involvement of central and municipal state and non-state actors.

According to 2013 figures of the Ministry of Communities and Returns, the number of

potential voluntary returnees stands at 733 families. The estimated number of internally

displaced persons (IDPs) within Kosovo also remains very high.

2.3.2 Objectives, results, and actions and indicators

There is a need to continue assistance for the return and reintegration process and the

stabilisation of minority communities. In addition, there is a need to find durable solutions for

refugees from Croatia and Bosnia-Herzegovina who have been living in collective centres

throughout Kosovo since 1994/1995. The main objective of IPA II interventions will be to

enable sustainable livelihoods and the durable integration into Kosovo society for returnees,

IDPs and refugees who want to settle in Kosovo. Kosovo will not only need to provide land

and housing solutions, but also improve access to education and employment opportunities

for returnees, as well as other socially marginalised groups. IPA II will also continue to

support the stabilisation of different communities in Kosovo through socio-economic and

livelihood measures.

The structures responsible for the protection, promotion, enforcement of and reporting on

fundamental rights, including freedom of expression, need to be further strengthened and

streamlined, both at central and local level. By 2020, the legal framework for the protection of

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human rights and protection of minorities should be effectively implemented. IPA II will

support Kosovo in strengthening the capacity of its institutions in charge of coordinating

human rights policies and monitoring. Education and awareness-raising about fundamental

rights and non-discrimination will be supported, including through civil society. With regard

to rights of persons belonging to minorities, IPA II will continue to support Kosovo in

effectively implementing the strategy and action plan for the Roma, Ashkali and Egyptian

communities. Efforts will focus on education, social services, civil registration of these

communities, as well as their integration into the labour market.

The expected results to be achieved with EU support include:

solid implementation of commitments in terms of anti-discrimination including for

Roma, LGBTI and other vulnerable groups (such as disabled and children);

structures responsible for the protection, promotion, enforcement and reporting on

fundamental rights, both at central and local level are streamlined and strengthened.

Indicators (for details see Annex 2, table 2):

Progress made towards meeting Copenhagen criteria (EC);

Composite indicator Freedom of Press (FH) and Press Freedom (RWB).

2.3.3 Risks

The main risk is the lack of political will and commitment to implement the necessary

reforms and measures.

Needs for IPA II assistance may change, depending on developments in the sector.

2.4 Types of financing

For comprehensive support and monitoring of the sector, the use of simultaneous twinning

actions in the key rule of law institutions (Ministry of Justice, Judicial Council, Prosecutorial

Council, Pristina court, Assembly, Anti-Corruption Agency etc.) is envisaged, but other types

of interventions cannot be excluded. All training/capacity-building measures will be

programmed and designed in close coordination with EULEX and other actors and donors in

the rule of law sector. Infrastructure support and supplies may be provided for key rule of law

actors. Support will be provided to civil society to monitor progress on human rights, anti-

discrimination etc., through IPA II as well as through the European Instrument for Democracy

and Human Rights. As organised crime in the Western Balkans is often international, multi-

country/regional programmes can contribute to the achievement of expected results in certain

areas (fight against cross-border organised crime and corruption, regional cooperation

between prosecutors, witness protection). Regional programmes can complement mainstream

measures on returns and migration issues. TAIEX support may also be used.

3. Energy

3.1 Needs and capacities in the sector

The lack of a reliable and clean energy supply represents a major challenge for Kosovo's

economic development and approximation to European environmental standards. Kosovo

suffers from an extremely high dependence (97%) on power production from two thermal

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plants burning indigenous lignite. Of these two plants, one (Kosovo A) cannot be upgraded to

meet EU environmental and emissions standards, and is the worst single-point source of

pollution in the region. It will need to be closed down, in accordance with Kosovo’s

obligations under the Energy Community Treaty, by 1 January 2018. The distribution and

supply company was privatised in 2013. The new owners have pledged to invest in the

company and improve its efficiency. Bill collection (as a proportion of energy produced) is

still low and will need to be improved to improve the economic viability of the entire sector

(and to reduce state subsidies).

Out-dated infrastructure and the lack of systematised maintenance expose Kosovo's electricity

supply system to risks. This is not compliant with international standards and codes and has

negative consequences for both system operators and consumers. Kosovo's transmission

network needs a considerable upgrade to ensure a secure and reliable power supply and meet

customers’ demands and obligations derived from grid code requirements, as well as to be

able to integrate Kosovo into a regional system. Despite the energy agreement reached with

Serbia, Kosovo continues to lose revenue as a consequence of this isolation from regional

power systems. The lack of control imperils the stability of Kosovo's power system. The

investment needed to upgrade the transmission network in terms of capacity, security and

reliability is very substantial, and in the mid-term cannot be covered from the Kosovo budget

and/or the Transmission System and Market Operator (KOSTT) revenues. On the other hand,

the alignment of the transmission network with European technical standards is a requirement

deriving from the Energy Community Treaty. Heating of facilities comprises around 70% of

the overall thermal energy consumption in Kosovo. Most public sector buildings have very

poor thermal insulation and those built before the 1990's do not have any insulation at all. The

district heating system is limited and inefficient.

The energy efficiency agency, KEEA, is understaffed and will need considerable capacity

building to prepare and implement the national energy efficiency plan and to ensure that

adequate mechanisms for verification and evaluation of results are put in place. KEEA still

does not have a dedicated energy efficiency fund (due to problems in establishing a separate

budget line). Since 2010, several projects have started to introduce energy efficiency

measures in public buildings both at central and municipal level. The main obstacles to

implementing energy efficiency measures in Kosovo have been the lack of capital required for

investment measures, lack of subsidies from the government and high interest rates at

commercial banks; low level of awareness regarding insulation cost-effectiveness; and lack of

implementing standards in building construction and materials supply.

Kosovo has set up the basic institutions in the energy sector, including the Ministry for

Economic Development, the Agency for Radiation Protection and Nuclear Safety, the Energy

Regulatory Office, and its Transmission System Operator (KOSTT) separate from other

utilities. Kosovo needs to develop its energy policies to ensure its gradual integration into EU

policies and networks. It needs to implement its current energy market legislation and

significantly improve the level of bill collection and payment. Kosovo also needs to

strengthen the legal framework and implementation mechanisms to meet its own 9% target

for energy efficiency improvement by 2018, as laid down in its National Energy Efficiency

Action Plan (NEEAP) 2010-2018. The legal and regulatory framework to develop renewable

energies also needs to be improved if Kosovo is to meet its target to produce 29% of its

electricity from renewable sources by 2020 (up from the current level of less than 3%). In

order to allow for private investment in the energy sector, Kosovo institutions must create a

favourable market environment. Measures are needed in terms of legislation, enforcement of

contracts and courts decisions, and tariff methodology. Kosovo should also foresee incentives

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to increase the use of renewable energy (both in terms of favourable tariffs and easier

permitting and licensing procedures), and promote business development in the field of

renewable energies and energy efficiency measures.

Under IPA I, the EU has supported the Energy Regulatory Office (ERO) and KOSTT in

further developing and effectively implementing the regulatory framework and the

requirement of the energy market in compliance with the Energy Community Treaty of South

East Europe. The Ministry of Economic Development has been supported in preparatory work

for the decommissioning of the Kosovo A Thermal Power Plant (TTP). In terms of

infrastructure interventions, significant investments have been made in this area by the EU, in

particular in strengthening the transmission system to reduce power losses and improve the

power supply in Kosovo. Another aspect is promoting energy efficiency and the use of

renewable energy resources in public buildings, both in terms of public infrastructure and

support to SMEs to implement energy efficiency and renewable energy investments. In

cooperation with KfW, the EU has supported heat produced through cogeneration at the

Kosovo B power plant, improvements in the distribution network and increased efficiency of

heat supply. Especially in the area of transmission and grids, most projects have been carried

out in cooperation with IFIs which have contributed consistently both in terms of financial

support (loans) and project management.

3.2 Objectives, results, actions and indicators

The overall objective of IPA II in the energy sector is to help Kosovo ensure a reliable energy

supply to citizens and enterprises, and align its legislation to EU energy standards. Regarding

energy production, the objective is to contribute to the reduction of its environmental and

health impact. The main results expected in the sector by 2020 are the implementation of the

decommissioning plan of Power plant Kosovo A, the completion of the legislative framework

in the area of energy and climate change, including the regulatory framework, secondary

legislation, and the implementation of the Third Energy Package, improved alignment of

Kosovo's energy sector with EU acquis and best practices. Kosovo will also work towards

improved institutional and human capacities in the relevant institutions and enhanced

competitiveness of the private sector in the renewable energy and energy efficiency sector,

including job creation.

IPA II will support Kosovo in the approximation of the EU acquis in the field of energy,

environment, climate change and nuclear safety, in particular by supporting the closure and

decommissioning of the Kosovo A power plant. Assistance will be provided to help

implement energy efficiency measures and explore renewable energy resources. In order to

enhance competitiveness, IPA II will also support education, research and innovation capacity

building, training and business development in the areas of energy and climate change.

Climate change mitigation measures will also considered.

The expected results to be achieved with EU support include:

implementation of the decommissioning plan of Power plant Kosovo A;

completion of the legislative framework in the area of energy and climate change;

including the regulatory framework, secondary legislation;

the implementation of the third Energy package;

introduction of energy efficiency measures in public buildings and in district heating

systems.

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Indicators (for details see Annex 2, table 2):

Progress made toward meeting Copenhagen criteria (EC);

Quality of Electricity Supply (WEF).

3.3 Types of financing

Following the donors conference for sustainable energy in Kosovo in May 2013, all donors

and IFIs committed to supporting Kosovo meeting its energy needs. Given the common goals

of the Kosovo authorities, the EU, other donors and IFIs, close cooperation is foreseen,

especially with IFIs. Building on the successful cooperation established under IPA I, efforts

of IPA II will partially focus on leveraging IFI support, in particular in high investment areas

such as energy efficiency, renewable energy sources and support to private sector activities.

The framework of this cooperation will be decided during programming, but the WBIF could

be considered as a means to channel IPA contributions for these actions. Multi-country

initiatives considered beneficial for achieving the abovementioned targets will be taken into

consideration. According to the priorities identified by the beneficiary countries, energy and

climate change could be tackled also at cross-border cooperation level. TAIEX support may

also be used.

3.4 Risks

Because of delays in the construction of the new power plant Kosovo C, Kosovo A may

not be able to be switched off before the agreed deadline of 31 December 2017;

Kosovo authorities will not allocate the necessary resources to meet the energy efficiency

and Renewable Energy Sources (RES) targets for 2018 and 2020;

Key institutions, such as the Energy Regulatory Office (ERO), the Agency for Protection

from Radiation of Kosovo and the Kosovo Energy Efficiency Agency, will not be

allocated sufficient financial and staff resources - this could limit their functioning and, in

particular for ERO, undermine the independence of the institution;

Lack of interest from private investors in RES.

4. Competitiveness and innovation

4.1 Needs and capacities in the sector

This sector aims to boost the competitiveness of Kosovo's economy, in particular SME

development and regional development. Support to this sector complements efforts in the

fields of economic governance, public administration and public financial management

referred to under ‘Democracy and governance’. Kosovo does not have a single,

comprehensive strategy for economic development. There is an Economic Vision Plan 2011-

2014 with the general objective to improve the environment for investment and the private

sector. The Private Sector Development Strategy and Action Plan 2013-2017 is supported by

five pillars and aims to make Kosovo and its companies globally competitive. Key features

are the promotion of investments and exports; further improvement of the quality

infrastructure; and improvement of trade policies to further improve Kosovo's trade balance.

The institutions which support private sector development do not have sufficient capacity to

promote foreign investment, particularly given the fierce competition from other countries in

the region. Among the main challenges for private sector development in Kosovo are limited

access to finance for SMEs, unfair competition among business actors and lack of

competitiveness caused by an unfavourable business environment, a lack of creative

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entrepreneurship, and innovation capacity. There is a need to support the ability of both new

and traditional businesses to compete and innovate through ICT and broadband

improvements, training and digital skills development. Shortcomings in management

expertise and corporate governance, such as insufficient quality management, limited

management sophistication and corporate professionalism, low levels of efficiency and value

added, pose additional obstacles to private sector development.

The fight against the grey economy is a cross-cutting challenge that needs to be addressed

from different angles. In this respect the main challenges for the Kosovo economy are weak

law enforcement, especially as regards contracts, and a high perception of corruption,

especially in the tax and customs administration. There are concerns regarding the security of

land titles and ownership (property rights) and constraints for businesses in getting reliable

power supply.

Adequate infrastructure is a necessity for technological development, the production of

innovative goods and services, and a competitive trade environment. Metrology laboratories

are not fully functional since they lack the necessary human resources, the knowledge and

scientific equipment to ensure effective regulation. There are no institutions to assess the

conformity of industrial goods. The market surveillance inspectorate has insufficient

administrative capacity and citizens are not aware of their rights as consumers.

4.2 Objectives, results, actions and indicators

IPA II will support the strengthening of institutional capacity in the socio-economic sector

and assist Kosovo in developing sound economic governance policies and an economic and

legal environment that is conducive to foreign and domestic investment. The development

and implementation of a comprehensive strategy for economic development, which identifies

sectors with potential for growth, will also be supported. The implementation of the Small

Business Act will be continued. Increasing the competitiveness of Kosovo's private sector,

especially SMEs, and promoting private investments including technological upgrade and

innovation capacity will be the main objective for IPA II support. Other serious constraints to

private sector development in Kosovo, such as energy supply, enforcement of the rule of law

and public administration obstacles, will also be addressed through sector measures. IPA II

will offer support to stimulate innovation, cooperation among SMEs themselves and with

educational and research institutions, and supporting the work of the authorities involved in

regulating the market. Other support will be given to creating and strengthening business

advisory services, local incubators, capacities of municipalities to support businesses, and to

strengthen the competition authorities. Support to local economic development will include

interventions at municipal level on infrastructure in key areas, including environmental

protection. In addition, support to improving the provision of training and skills at all levels

will be supported.

As regards access to finance for enterprises, IPA II will closely coordinate with IFI

interventions in the sector. IPA II will continue to provide grant support for micro-enterprises

and start-up businesses with a special focus on innovative business models, export-oriented

services and female entrepreneurs. At the same time, as IFI support to Kosovo increases,

SMEs will be supported and encouraged to make use of other financing opportunities. The

capacity of the SME Development and Promotion Agency to implement and monitor SME

support programmes and schemes should be increased, enabling it to progressively take over

the activities currently funded and managed by donors. Another objective for IPA II

assistance will be the improvement of quality infrastructure by increasing the number and

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capacity of laboratories and bodies for conformity assessments. Consumer rights and

consumer protection will be promoted, including through increased civil society involvement.

The expected results to be achieved with EU support include:

sound economic governance policies developed, an economic and legal environment

established, allowing domestic companies to become more competitive through an

increase in their share of trade with the EU and the region;

Kosovar companies made competitive on the international markets, domestic investments

and FDIs increased;

the access to finance is improved, allowing companies (including SMEs) to access credit

at more favourable conditions.

Market surveillance, focussing especially on product safety and aimed at consumer

protection, is improved;

Indicators (for details see Annex 2, table 2):

Progress made towards meeting Copenhagen criteria (EC);

Distance to frontier, Doing business - score (WB).

4.3 Types of Financing

Close coordination and collaboration with IFIs will be sought, in particular as concerns access

to finance for SMEs. Support through regional instruments such as the WBIF and EDIF will

be considered following an assessment carried out in cooperation with the Kosovo

institutions. TAIEX support may also be used.

4.4 Risks

Insufficiently developed financial sector to channel the resources available to the

industrial sector;

Interest rates offered by commercial banks will not be increased despite an increase in

SME capacities, undermining the envisaged gradual phase-out of donor support and

normalisation of the lending market in Kosovo;

Insufficient absorption capacity of SMEs and lack of demand for modern financing

sources.

5. Education, employment and social policies

5.1 Needs and capacities in the sector

Kosovo has the youngest population in Europe with 50% under 25 years of age. Human

capital plays a crucial role in ensuring sustainable socio-economic development. As

confirmed in the 2013 Progress Report, significant investment is necessary. The education

sector is still affected by the lack of adequate facilities, maintenance and quality assurance. Crucial challenges to be tackled in the education sector include improving the quality of

primary and secondary education, vocational education and training; strengthening

transparency in the education system; investment in teacher skills. Higher education in

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Kosovo is subject of reform in line with the Bologna process, but many reforms still need to

be implemented. Participation in the Erasmus+ programme and its external dimension

supporting the modernisation of higher education will help improve higher education. As

youth aged 15-24 make up 31% of the working age population, youth unemployment is a

particular challenge. Unemployment remains very high, with significant structural

weaknesses and skill gaps in the labour market. The labour market remains underdeveloped.

As a result, there are few job opportunities for young entrants (about 30.000 per year). The

informal nature of the economy has a consistent impact on the shape of the labour market of

Kosovo, by limiting skills development and trapping people into low skilled/low productivity

jobs. Of the many unemployed, about 60% are unskilled. However, the number of

unemployed persons with a university education has also increased, signalling a mismatch

between the skills needed on the labour market and those provided by the education system.

Increasing the level and relevance of skills and qualifications of the labour force is therefore

one of the main challenges.

The Employment and Welfare Strategy 2014-2020 is a comprehensive strategy that aims to

improve the functioning of the labour market, promote skills development, overhaul the social

welfare system and consolidate the role of social partners.

Among the objectives listed in the Kosovo Education Strategic Plan 2011-2016, the Kosovo

government has identified a reduction in the number of shifts in schools as a key priority. At

present half the registered schools still work in two shifts and many others in three. Schools

lack science laboratories, sports facilities and appropriate school building maintenance. Better

alignment of education and training programmes with labour market needs is another priority.

IPA assistance has been successful in helping Kosovo introduce a sector-wide approach in

education and draft a comprehensive sector strategy.

5.2 Objectives, results, actions and indicators

The EU will support Kosovo in implementing the Employment and Welfare Strategy 2014-

2020 and in improving the institutional capacities to design and implement effective policies.

It will also support specific and targeted policies aimed to raise the employability and social

inclusion among particularly vulnerable groups such as long-term unemployed, marginalised

communities, youth and women, with a view to promoting active inclusion. In order to design

effective support measures, earlier policies and IPA assistance will be carefully evaluated

before programming new support. IPA II will assist Kosovo in pursuing this objective by

supporting educational reform, enhancing cooperation with private sector, expansion of

apprenticeship and scholarship schemes and development of vocational skills according to

labour market demands. Improving inclusiveness of both education sector and labour market,

by ensuring access to education and training, reducing drop-out levels among the most

vulnerable groups, especially girls, students from minority communities and students with

disabilities, is another important objective for the sector until 2020. In the area of social

welfare, a number of projects were initiated over the last few years that will require increasing

support from the Kosovo authorities, both in terms of political commitment and budget

allocation, and some further IPA assistance to become sustainable. In order to design effective

support measures, earlier policies and IPA assistance will be carefully evaluated before

programming new support.

The expected results to be achieved with EU support include:

Increased alignment of education and training programmes with labour market needs

32

improvement of the inclusiveness of both the education sector and the labour market;

increase in the employment rate among particularly vulnerable groups such as long-term

unemployed, marginalised communities, youth and women;

Indicators (for details see Annex 2, table 2):

Progress made towards meeting Copenhagen criteria (EC);

Employment rate 15 to 64 years, total % (Eurostat).

5.3 Types of financing

In the medium term, there is less need for technical assistance in the education sector as

ongoing IPA programmes will provide assistance for the period 2013-2016. Reduced

technical assistance for labour market relevant education and training programme reform will

be needed as from 2017. While IPA-funded technical assistance to social service

decentralisation will cover the period 2014-2016, further support will be necessary,

particularly at municipal level, after that period. Given the positive results of the grant

schemes implemented through IPA in favour of SMEs to promote employment, grant

schemes will be continued under IPA II. Cooperation with IFIs will be sought in the area of

educational infrastructure as grant funds will be insufficient to cover all needs; regional

initiatives involving IFIs will also be considered. In the area of vocational education, there is

a need to coordinate with other donors, who are already active (especially Germany and

Luxembourg). IPA II multi-country programmes may be used to ensure Kosovo's

participation in regional cooperation initiatives in the areas of education, research and public

health. On-going regional initiatives (such as SEE 2020 and the European Fund for Southeast

Europe - EFSE) will be reviewed regarding their potential to add value and multiplier effects.

Participation of Kosovo in the relevant EU programmes in the area of education, research and

culture will be encouraged. TAIEX and twinning support may also be used.

5.4 Risks

There is an increased risk in this sector that the government will rely too heavily on donor

funding and neglect its own funding responsibilities. For example, the budget allocation

for active labour market measures (less than 1% of the consolidated budget in 2013) is

clearly insufficient to effectively address needs. IPA II support in this area will therefore

be made strictly conditional on the government's own sustained investment in the sector.

In particular, the government of Kosovo will be expected to provide adequate co-

financing for school building programmes and a guaranteed budget for recurrent costs to

assure maintenance of school facilities.

6. Agriculture and Rural Development

6.1 Needs and capacities in the sector

The sector of agriculture and rural development plays a very important role in providing

employment opportunities and generating income. The sector has potential for growth and

exports. At present, however, the sector is characterized by unfavourable farm structures

(holdings are mostly semi-subsistent, land parcels are fragmented and small in size, and

animal herds small limited in numbers), outdated farm technologies, lack of technical

expertise, sub-optimal use of inputs, outmoded farm management practices, weak rural

infrastructure, a rudimentary rural advisory system and limited access to credit and

33

investment capital. Combined with the uncontrolled urbanisation and the absence of proper

procedures to value and reclassify land, Kosovo's agriculture faces serious obstacles to

competitiveness. Agricultural productivity and yields are low, and small farm sizes mean that

farmers cannot produce enough surpluses for commercialisation. A significant portion of the

production is self-consumed by the households and only a limited amount is brought to the

market, usually without long term contractual arrangement and outside of proper controls or

management.

With the promulgation of the Law on Food Safety in April 2009, the food safety and control

system in Kosovo was subject to a major reorganisation. The establishment of the executive

Food and Veterinary Agency and ensuing transfer of staff and competencies related to

veterinary, phytosanitary/sanitary matters were key actions in the implementation of the food

law. Following the transfer of staff and responsibilities, including at regional and municipal

level, and fundamental changes in the food control system, there are major needs for

investment, both in infrastructure and in building the capacities of staff at headquarters and

regional offices to implement the integrated and risk-based system in the area of food safety

and quality. Quality control remains one of the challenges in the coming years.

The lead ministry in the sector is the Ministry of Agriculture, Forestry and Rural

Development (MAFRD). The Ministry runs a limited number of support schemes that are

managed by a Paying Agency. It has also begun developing a Farmer Register and simplified

Land Parcel Identification System to contribute to overseeing the current rural grant schemes.

The Agriculture and Rural Development Programme (ARDP) for the period 2014-2020 was

adopted by the government in 2013. The strategy, drafted with the support of twinning

assistance, aims at restructuring Kosovo's agro-rural sector in line with the EU acquis and

standards; and improving the living standard of Kosovo's rural population. IPA II support will

be in line with the priorities and objectives of this sector strategy.

6.2 Objectives, results, actions and indicators

The overall objective of IPA II assistance in this sector is to support Kosovo institutions

aligning and implementing the Common Agricultural Policy and meeting EU standard food

control mechanisms; to increase the competitiveness of the agri-food sector; to increase the

capacity of food business operators to meet EU food safety standards and their

competitiveness; to improve its adaptation to climate change phenomena; and to improve the

living standards of Kosovo's rural population. While pursuing these objectives, IPA II

assistance will also help Kosovo in addressing challenges of climate change by promoting

resource efficiency in the agriculture, food and forestry sectors; social dialogue and transfer of

knowledge and innovation; and social and economic inclusion. Even though the Food and

Veterinary Laboratory has benefited from investments by the World Bank, the government

and the EU, further support is needed to bring food safety standards in line with the acquis.

Support will be provided to improve systematised and reliable data collection and production

of statistics in line with EU requirements. In the context of preparing for budget support and

indirect management of EU funds, Kosovo will be supported in establishing the necessary

structures and capacities for managing IPARD funds. Climate change adaptation measures

will be included in the development of the agricultural and rural sector in Kosovo.

In agriculture and rural development, IPA II assistance will support Kosovo in achieving the

following results by 2020:

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Kosovo legislation on agriculture and rural development policy aligned with the EU

acquis and implemented;

Administrative capacity for the development and implementation of agriculture and

rural development policy strengthened;

Improved and upgraded data collection, storage and reporting system for all sectors in

the Ministry for Agriculture and Rural Development;

Food business operators and producers prepared to be competitive in the regional and

EU market, including through the establishment and functioning of advisory services;

Enhanced access to credit for farmers and agri-food operators (in cooperation with

IFIs);

Increased employment and income generation in the agro-food sector and rural

services, including the introduction of vocational training education, farm

management and farm accounting education;

Efficient land management and land market organisation, including the reduction of

illegal construction on agriculture land;

Efficient water management/irrigation, including a clear link with the overall Kosovo

water strategy developed by the Ministry for environment and Spatial Planning

(MESP);

Adaptation measures to improve resilience to the adverse effects of climate change

implemented.

In the specific area of food safety, veterinary and phytosanitary, IPA II assistance will

support Kosovo in reaching the following results by 2020:

Fully functional and uniform food control system in line with the requirements of the

food law and relevant sub laws;

Improved and upgraded data collection, storage and reporting system for all sectors in

the KVFA;

Improved overall performance of the phytosanitary sector, including disease

recognition and reporting;

Systematised and reliable data collection and production of statistics in line with EU

requirements, established training practise for statisticians.

Indicators (for details see Annex 2, table 2):

Progress made towards meeting Copenhagen criteria (EC);

Total investment generated via IPA in agri-food sector and rural development (DG

AGRI).

6.3 Types of financing

The potential to learn and benefit from the experience of other enlargement countries should

be encouraged. Given the positive results of the grant schemes implemented through IPA in

support to rural development and agriculture, the grant schemes will be continued under IPA

II. Special attention will be paid to the coordination with other donors, in particular the World

Bank and the EBRD. Given the positive experience in the use of TAIEX and twinning under

IPA 2007-2013, this type of cooperation with Member States will be encouraged.

6.4 Risks

Insufficient national budget allocated to the implementation of ARDP and food safety

standards and regulations;

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High turnover of staff at MAFRD and KVFA. This should be improved through human

resources measures at central level;

Lack of knowledge on the government side to audit and guide the implementation and

maintenance of food safety and quality system;

Lack of proper statistical data on number of farmers, animals, arable land, etc. IPA II

funds will be used to help Kosovo in improving its statistical information;

Lack of identification of property ownership. (IPA II assistance in the rule of law sector

will support Kosovo in addressing property issues).

7. Regional cooperation and territorial cooperation

Kosovo started programming cross-border cooperation CBC programmes with the former

Yugoslav Republic of Macedonia and Albania in 2010 and Montenegro in 2011. During the

period 2014-2020 the European Union will continue to support the cross border programmes

Kosovo already established. In line with the objective of reconciliation and normalisation of

relations with Serbia, IPA II assistance will be provided for the development of territorial

cooperation with Serbia, in the medium term at the latest. Development of this cooperation

will have to be agreed and prepared jointly, in line with the ongoing dialogue between

Belgrade and Pristina facilitated by the EU. The programmes to be developed for the period

2014-2020 shall focus on the socio-economic development of the border/boundary areas.

Specific objectives, results and indicators per thematic priority shall be established in each

cross-border cooperation programme. Continuation of people-to-people actions, human

resource development and information sharing has to remain as an essential part of the

individual CBC programmes.

Scope, objectives and thematic priorities of each cross-border programme are laid down in a

dedicated seven years multi-annual programming document, which has been drafted on the

basis of extensive consultation with local stakeholders. The multi-annual programming

document foresees indicative annual budget allocations and defines a set of indicators to

measure the impact of the programme and identifies the specific bordering areas, which are

eligible for funding.

In the environment sector there is a strong need for investment, in particular in water and

waste management. Although officially Kosovo considers the environment as one of the main

priorities for action, this is not reflected in actual budget planning and repartition. Kosovo will

use the Western Balkans Investment Framework (WBIF) to address investment needs in the

environmental sector. Kosovo will participate to the Environment and Climate Regional

Accession Network (ECRAN), which will enable Kosovo to build its capacities in the

environment field, as well as establishing good cooperation with the other countries in the

region.

As concerns the transport sector, IPA II will support only the interventions aimed at

connecting Kosovo with its neighbours. Assistance will be channelled through regional

interventions, in particular in the railway sector, through WBIF coordination.

In general, economically feasible and bankable projects should be funded by loans provided

by IFI or other donors. The fiscal space for taking up loans is limited following the impact of

the economic crisis in recent years. Grant funding for investments is therefore important but

at the same time inherently limited. Consequently, there is a need for a mechanism to agree on

overall national and regional investment priorities between the government, the European

Union, other donors, relevant regional organisations and the IFI, as well as for blending of

36

grants and loans. This coordinating platform will be the Western Balkans Investment

Framework (WBIF).

IPA II multi-country programmes may be used to ensure Kosovo's participation in regional

cooperation initiatives in the areas of education, research and health.

The indicator to be used to measure the accomplishment of the expected results of EU

assistance in this area will include (see table 2 in annex 2):

• Number of involved municipalities (MIS)

37

ANNEX 1: INDICATIVE ALLOCATION (MILLION EUR)1 per policy area and sectors

1 Any possible differences in figures displayed in policy areas and sectors compared to the annual totals are the effect of rounding to one decimal.

Kosovo 2014 2015 2016 2017 2018-2020

Total

Of which climate

change relevant (%)

(**) 2014-2020

(*)

a. Reforms in preparation for EU approximation 37.3 34.0 31.0 35.2 99.1 236.6

Democracy and governance 64.4 46.0 110.4

Rule of law and fundamental rights 73.1 53.1 126.2

b. Socio-economic and Regional development 20.0 37.9 33.0 30.0 114.1 235.0

Energy 46 54 100.0 80%

Competitiveness and innovation 74.9 60.1 135.0

c. Employment, social policies, education, promotion of gender

equality, and human resources development 14.5 7.0 10.0 16.7 46.0 94.2

Employment, social policies, education, promotion of gender equality,

and human resources development 48.2 46.0 94.2

d. Agriculture and rural development 12.0 7.0 14.7 10.0 36.0 79.7

Agriculture and rural development 43.7 36.0 79.7 20%

TOTAL 83.8 85.9 88.7 91.9 295.3 645.5

38

ANNEX 2: INDICATORS AND TARGETS

Table 1a: Context indicators

Indicator Source

Baseline Last value

2010 year value

Public debt (% of GDP) Eurostat:

6,06

Real GDP growth rate (average last three years - %) Eurostat:

3,2

Unemployment Rate (%) Eurostat:

35,1

(2012)

GDP per capita at current prices (EUR) Eurostat:

2418

FDI per capita € Eurostat:

165,8

39

Table 1 b: Outcome and impact indicators *

Sector Indicator Baseline Last value Milestone Target

2010 year value 2017 2020

Composite indicator (average ranking provided by eight

external sources)

Corruption Barometer, Control of Corruption, Freedom of

Press, Press Freedom, Rule of Law, Government

Effectiveness, Regulatory Quality, Voice and Accountability

43,8

Progress made in reaching the political criteria provided DG ELARG – Progress Report

Progress made on implementation of acquis DG ELARG – Progress Report

Progress made in meeting economic criteria DG ELARG – Progress Report

* Targets will be provided at a later stage

40

Table 2: Sector Indicators *

Sector Sub sector Indicator Source

Baseli

ne Last value Milestone Target

2010 year value 2017 2020

Governance

and Democracy

Governance and

PAR

Progress made towards meeting Copenhagen

criteria DG ELARG – Progress Report

Composite indicator (average of Government

Effectiveness, Burden of Government

Regulation and Regulatory Quality) - 1 (Worst)

- 100 (Best)

World Bank, World Economic Forum 42,03

Public Financial

Management

Progress made towards meeting Copenhagen

criteria DG ELARG – Progress Report

Statistics

Progress made towards meeting Copenhagen

criteria DG ELARG – Progress Report

Statistical compliance - %

0 (Worst) - 100 (Best) Eurostat:

4%-

10%

(2013)

Rule of law and

fundamental

rights

Judicial reform

Progress made towards meeting Copenhagen

criteria DG ELARG – Progress Report

Composite indicator (average of Access to

Justice and Judicial independence)

World Justice Project, World Economic

Forum

Fight against

corruption and

organised crime

Progress made towards meeting Copenhagen

criteria DG ELARG – Progress Report

Composite indicator (average of Global

Corruption and Control of Corruption) 1

(Worst) - 100 (Best)

Transparency International, World Bank 30,45

Fundamental

Rights

Progress made towards meeting Copenhagen

criteria DG ELARG – Progress Report

Composite indicator (average of Freedom of

Press and Press Freedom)

1 (Best) - 100 (Worst)

Freedom House, Reporters Without

Borders 37,92

Refugees and

Border

management

Progress made towards meeting Copenhagen

criteria DG ELARG – Progress Report

41

Sector Sub sector Indicator Source

Baseli

ne Last value Milestone Target

2010 year value 2017 2020

Energy

Progress made towards meeting Copenhagen

criteria ELARG – Progress report

Quality of electricity supply

1 (Worst) - 7 (Best)

World Economic Forum

N/A

Competitivenes

s and

Innovation

Progress made towards meeting Copenhagen

criteria DG ELARG – Progress report

Doing Business - Distance to frontier (score)

1 (Best) - 100 (Worst) World Bank - Doing Business: 54,35

Education,

employment

and social

policies

Progress made towards meeting Copenhagen

criteria DG ELARG – Progress report

Employment rate (15-64 years), total - % Eurostat:

23,9

(2012)

Agriculture

Progress made towards meeting Copenhagen

criteria DG ELARG – Progress report

Total investment generated via IPA in agri-food

sector and rural development (EUR) DG AGRI

Territorial

Cooperation

and Regional

Cooperation

Number of involved municipalities European Commission Management

Information System

* Targets will be provided at a later stage.